STAGFLATION?
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.1 percent before seasonal adjustment.
The index for all items less food and energy increased 0.3 percent in January. Along with shelter, apparel, and medical care, the indexes for motor vehicle insurance, personal care, and used cars and trucks also rose in January. The indexes for airline fares and new vehicles were among those that declined over the month.
The all items index rose 2.1 percent for the 12 months ending January, the same increase as for the 12 months ending December. The index for all items less food and energy rose 1.8 percent over the past year, while the energy index increased 5.5 percent and the food index advanced 1.7 percent.
Core CPI last 3 months: +2.4% annualized vs +1.2% the previous 3 months. Last 2 months: +3.0% a.r..
WEAK RETAIL SALES
Advance estimates of U.S. retail and food services sales for January 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $492.0 billion, a decrease of 0.3 percent from the previous month, but 3.6 percent above January 2017. Total sales for the November 2017 through January 2018 period were up 4.9 percent from the same period a year ago.
The November 2017 to December 2017 percent change was revised from up 0.4 percent to virtually unchanged.
With the shocking revisions, total retail sales for Nov-Dec were down –0.23%. Was it just consumers adjusting their spending following the torrid Sep-Oct pace of +1.4% (+8.6% annualized)? Or the start of a meaningful slowdown which would presumably improve the inflation data in coming months?
A big guessing game has begun.
The optimist view will argue that accelerating wages and the tax cuts will keep consumers alive.
The pessimists will counter that wages are not accelerating as much as generally believed, especially in real terms, and that consumers need to address their debt problem (see below) especially with rising interest rates.
U.S. Household Debt up $193 Billion
Outstanding household debt rose by $193 billion to $13.15 trillion in the final three months of 2017, completing the fifth straight year overall balances increased, the Federal Reserve Bank of New York said Tuesday.
Total debt was the most on record, though the figure wasn’t adjusted for inflation or population growth. As a share of U.S. economic output, household debt was about 67% last quarter, barely edging up from the third quarter and well below a high of about 87% in early 2009. (…)
The share of debt considered to be seriously delinquent, meaning payment is at least 90 days late, fell slightly to 3.12% in the fourth quarter from 3.19% the prior period, the New York Fed said.
The serious delinquency rate on mortgage loans has trended down for several years. Delinquency on credit cards held fairly steady last year, ending a period of decline. Delinquency on auto loans edged up in the fourth quarter, though the average credit score for new auto loans rose slightly. Student-loan delinquency remains persistently above prerecession levels.
As debt increased, the net worth of U.S. households, including the value of investments and real estate, also climbed further into record territory last year. Total net worth rose by $1.742 trillion to $96.939 trillion in the third quarter of 2017, according to separate Federal Reserve data. Rising stock markets and property prices boosted wealth last year. (…)
Consumers added $26 billion to credit-card balances in the fourth quarter, bringing the total to $834 billion. That indicates credit-card holders took on debt to boost household spending. (…)
U.S. Auto Loan Credit Scores Rise
The median credit score for car loans made in the quarter rose to 707, according to the Federal Reserve Bank of New York’s report on household debt. That’s up two points from the third quarter and the highest level since 2011, when lenders were ratcheting up lending standards in the wake of the Great Recession.
The credit score for loans in the 10th percentile, or those that are weaker than 90 percent of borrowers, rose two points to 575, the highest since 2010. Consumer credit scores typically range from 300 to 850, and borrowers below 620 are often viewed as subprime. (…)
The Student-Loan Problem That Won’t Go Away Delinquencies on student debt remain high despite low unemployment and debt-forgiveness options
(…) At this year’s start, 11% of the nearly $1.4 trillion in student debt was delinquent—sitting in an account that hadn’t received a payment in at least 90 days. And that figure understates the problem. Roughly half of all student debt is held by borrowers who aren’t required to be making payments because they’re still in school, unemployed or for other reasons. Strike out those instances and the share of delinquent student debt is more like 22%, the New York Fed says. (…)
According to Raymond James analysis, 53% of Millennials (18-36 years) have subprime (< 600) or no credit score. Average FICO scores for approved purchase loans remain above 750 for conventional loans and above 680 for FHA loans.
As a result, some 23 million young Americans (30% of 18-34 cohort). “Isolated to just 25-34 year olds, the generational differences are more clear. More than 16% of Millennials over age 25 live with parents, relative to just 11% of Generation X at a similar life stage” and 10% for baby boomers.
No wonder housing starts remain well below previous levels:
Total U.S. births declined 1% y/y in 2016 to 3.94 million – down 9% from 2007 levels. Provisional 2017 data and trends indicate another 3% y/y drop to 3.83 million births last year.
Demand potentially lost, not just delayed. Birth rates among women fall off dramatically (nearly 50%) after age 35. If too many Millennial women move past age 35 without children, those hypothetical births will be lost – not just delayed.
Fewer babies limits housing recovery potential. These trends represent a formidable headwind for the ultimate recovery of single-family housing. This factor plus slowing population growth are key reasons why we do NOT think single-family starts will rebound to pre-recession averages this cycle. Having children/larger families is the #1 reason why households migrate into single-family homes in lieu of apartments/condos. (RJ)
Did you know that?
Meanwhile, the U.S. government plans to pile up debt like never before. This when times are good…
- Here is the forecast for the Treasury debt supply coming to market amid a rapidly rising budget deficit. At the same time, the Fed is shrinking its balance sheet and adding to the supply. (The Daily Shot)
Who’s going to buy all this debt? Not the Fed!!
Japan records longest growth spurt since 1989 Consumption and business investment strong despite slowdown in final quarter
- Private consumption contributed one percentage point to annualised growth in the fourth quarter.
- Business investment contributed 0.4 percentage points.
- Residential investment subtracted 0.3 percentage points, an inventory rundown cut 0.3 percentage points and government spending subtracted 0.2 percentage points.
- Net exports also cut 0.1 percentage point compared with the previous quarter when trade added 2.2 percentage points to the total.
- Final sales (ex-inventory changes) suggest that Japan’s economy is still growing in line with its long-run potential of about 0.7-0.8 per cent a year.
TECHNICALS WATCH
LR says that yesterday’s rally failed to produce a follow up 80% Up Day to Monday”s confirmed 80% Up Day. Tuesday’s Up Volume was just 54% of total Up/Down Volume which, with NY Comp. Volume falling 13% below the already-low volume on Monday”s rally, suggest weakening Demand.